Nvidia (NVDA 0.56%) is a pioneer in the field of artificial intelligence (AI). That's not surprising, as the proliferation of this technology wouldn't have been possible without its chip systems and coding architecture, which have allowed developers to train and develop large language models (LLMs) and build inference applications.
What's worth noting is that Nvidia has become the go-to player in the AI chip market. It maintains a dominant position in this segment even after three years, controlling an estimated 85% to 90% of this market. That's quite impressive considering that several companies have tried to eat into Nvidia's share of this market in the past three years, but they haven't been as successful.
There are several reasons this has been the case. Nvidia exercises terrific control over the AI chip supply chain; its CUDA programming platform has been the go-to platform for developers because of its fast processing, efficiency, and familiarity in the developer community; and major hyperscalers and AI companies rely on its chips to process enormous AI workloads in data centers thanks to the technological advantage it has enjoyed over its rivals.
Palantir Technologies (PLTR +2.19%) seems to be adopting a similar playbook in the generative AI software market. Let's examine the reasons this company is likely to experience its Nvidia moment soon.
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Palantir is gradually becoming the go-to provider of AI software
Just as Nvidia has been the ideal provider of hardware chips for anyone looking to train and run AI models and applications, Palantir is gradually establishing a similar position in the AI software market. That's evident from the rapid uptake of the company's Artificial Intelligence Platform (AIP), which was launched by the company in April 2023.
NASDAQ: PLTR
Key Data Points
Palantir has seen a significant jump in its customer base and contract sizes since launching this platform. For instance, Palantir's overall customer count increased by 34% year over year in the third quarter of 2023, just after the launch of AIP. The company signed $830 million worth of contracts in that quarter and inked 12 deals worth $10 million or more.
All these metrics have jumped impressively thanks to AIP adoption. Palantir's total customer base was up by 45% last quarter, and it signed 53 deals that were worth $10 million or more. What's more, Palantir inked $2.8 billion worth of new contracts in Q3, up by a whopping 151% from the year-ago period. These numbers make it clear that Palantir's AIP has gained terrific traction. It won't be wrong to say that it seems poised to become the Nvidia of AI software.
That's because just like Nvidia's AI chips have been technologically better than rivals, helping customers train and deploy AI models at lower costs when compared to competing chips, Palantir's AIP seems to be the best offering in the AI software platforms industry. The company has been regularly ranked as the No. 1 provider of AI and machine learning (ML) software solutions in recent years.
This explains why it is now attracting customers at a stronger pace following the release of AIP. Additionally, customers who deploy AIP are extending the use of this platform across their operations due to the productivity gains they are witnessing. As a result, it won't be surprising to see Palantir becoming a more influential player in the fast-growing AI software market.
Why Palantir can become the Nvidia of AI software
The AI software platform market is expected to generate just over $18 billion in revenue in 2025, according to a third-party estimate. Palantir is expecting $4.4 billion in revenue this year, which would be a 53% increase over last year. The important thing to note here is that Palantir's estimated 2025 revenue suggests that it could corner just over 24% of the AI software platform market this year, based on the $18 billion market size mentioned above.
Moreover, the company's revenue and contract value are growing at a much faster pace than the 39% annual growth that the AI software platform market is projected to clock. As such, there is a good chance of Palantir cornering a much bigger slice of the AI software platform market in the long run. After all, its peers such as BigBear.ai and C3.ai haven't been able to gain enough traction in this market, leaving a lot of room for Palantir to become a bigger player in this niche.
Assuming Palantir can increase its share of AI software platforms to even 50% after five years, its annual revenue could land close to $50 billion as the overall market is expected to hit $94 billion in annual revenue in 2030. Such impressive growth should ideally allow Palantir to justify its expensive valuation, setting this AI stock up for more gains in the long run as it is likely to replicate Nvidia's dominance in AI software.
